CKD (TSE:6407) Is Doing The Right Things To Multiply Its Share Price

There are a few key trends to look for if we want to identify the next multi-bagger. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at CKD (TSE:6407) so let's look a bit deeper.

We've discovered 1 warning sign about CKD. View them for free.

Return On Capital Employed (ROCE): What Is It?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for CKD, this is the formula:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.10 = JP¥17b ÷ (JP¥214b - JP¥44b) (Based on the trailing twelve months to December 2024).

So, CKD has an ROCE of 10%. On its own, that's a standard return, however it's much better than the 8.1% generated by the Machinery industry.

View our latest analysis for CKD

In the above chart we have measured CKD's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for CKD .

How Are Returns Trending?

We like the trends that we're seeing from CKD. The data shows that returns on capital have increased substantially over the last five years to 10%. The amount of capital employed has increased too, by 72%. So we're very much inspired by what we're seeing at CKD thanks to its ability to profitably reinvest capital.

What We Can Learn From CKD's ROCE

In summary, it's great to see that CKD can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Since the stock has only returned 35% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So with that in mind, we think the stock deserves further research.

CKD does have some risks though, and we've spotted 1 warning sign for CKD that you might be interested in.

While CKD isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.